Sandals will help boost Barbados' economy
THE decision by the Caribbean hotel group, Sandals Resorts International (SRI), led by Gordon "Butch" Stewart to invest in two hotel projects in Barbados should help to boost that country's economy at a time when it is experiencing fiscal difficulties.
If the Barbados economy remains on the present trajectory, it will run a deficit of nine per cent of GDP which will require it to borrow around Bd$1 billion. The public debt to GDP ratio has risen from 56 per cent in 2008 to 102 per cent today, according to the Central Bank of Barbados' Economic Performance Report. Gross public sector debt stood at 98.2 per cent of GDP at the end of 2012. At June 2013, 59 per cent of public sector debt was financed domestically.
Within the last few years, Barbados has seen its investment grade ratings slip down to junk bond status (Moody's Ba1 and S&P's BB+/B ratings). Moody's Investor Services advised that to combat further downgrading Barbados should focus on improving economic performance and managing the deterioration in the debt metrics.
The Minister of Finance, Christopher Sinckler will now have to approach the capital markets for a further bond issuance and to negotiate with lending agencies in order to bolster reserves by at least Bd$800 million.
Of particular concern, foreign reserves are down to just Bd$1.2 billion which in effect is only 16 weeks of cover.
"What has happened is, in the first 6 months of 2013, the amount of foreign exchange that has been coming in, is significantly less than we expected," said Barbados Central Bank Governor, Dr Delisle Worrell. This could lead to a possible devaluation of the currency which will only serve to compound the country's problems further.
Falling foreign reserves and revenues
Earlier this month in an address to the nation on financial and economic matters, Sinckler said: "In 2013, economic policy in Barbados was driven by two dramatic and unexpected developments that no responsible government could afford to ignore. Firstly, after remaining stable at 16 or more weeks of import cover for the 2008 to 2012 period, foreign exchange reserves in Barbados began a sudden and dramatic decline from around April 2013. The sudden and dramatic decline in the foreign exchange reserves cannot be justified by any developments in the underlying economy or dramatic policy reversals by this administration.
"Secondly, the government revenues experienced a major decline in the second half of 2013. Those two developments rather than any change in the fundamentals of the Barbados economy were the major causes of the economic challenges and subsequent downgrades that Barbados faced in 2013."
According to its last budget, the government assumed its total GDP to be around Bd$9.2 billion. However that figure appears to be a tad bit optimistic and the government has been advised to cut expenditure by an estimated 4 per cent of GDP, or nearly Bd$400 million in order to protect foreign reserves and cut the fiscal deficit.
Public sector job cuts
In order to reduce public expenditure the decision was taken to let go 3,000 public sector workers which represents 10 per cent of the country's entire civil service. Also the government has imposed a wage freeze over the next five years and a 10 per cent cut in the salaries of ministers and MPs. These cuts should save the government some Bd$26 million.
Barbados has to grow itself out of its problems and must now look to attract more foreign investment. How does it propose to do so?
Sinckler said: "Growth must be led by the sectors that earn or reduce the use of foreign exchange. At present the sectors that Barbados can be internationally competitive in are tourism and hospitality, international business and financial services, agro-processing, light-manufacturing particularly in niche areas, and green energy.
"The growth strategy has to be led by private investment and entrepreneurship. Government's role is to provide incentives, infrastructure and an enabling environment in support of private initiative and investment."
Sandals is the largest indigenous Caribbean resort chain and Barbados is a major Caribbean tourism province.
Decline in arrivals to Barbados
Last year, declines were registered in long-stay arrivals and associated earnings. Arrivals from its three largest source markets also declined with a 15 per cent fall in visitors from North America.
At a time when Barbados' tourism product is experiencing lackluster performances and the economy is seeing a shortfall in both foreign reserves and revenue not to mention a downgrade by the rating agencies, Sandals presence is timely and should be a fillip to its ailing economy.
Sandals invests US$250 million in Barbados
Sandals has purchased the former Almond Casuarina Beach Resort in the south which will now be transformed into Sandals Barbados, while the site of the former Almond Beach Village in the north will be a Beaches family resort. Both hotels mark an investment of some US$250 million.
Chairman of Sandals Resorts International, Gordon "Butch" Stewart is reported as saying: "Being in the Caribbean and not being prominent in Barbados is not good for my organisation," which is a recognition of the potency of the country's tourism product and in keeping with Stewart's avowed pledge to support the region and put in on the map as one of the world's leading destinations.
Some in Barbados have expressed concern that Sandals is getting too many concessions. However the Minister of Finance himself stressed the importance of incentivising investors to come to Barbados and help bolster foreign exchange earnings.
At a time when the country is facing the twin evils of a failing economy with falling revenues and significantly reduced visitor arrivals, Sandals presence is particularly propitious and will go a long way in boosting the country's fortunes.
So what will Sandals contribute to Barbados?
1.With the public sector set to lose 3,000 workers, both hotels will be employing some 1,500 workers. This spells a net loss of 1,500 workers with the country experiencing an unemployment rate of 15 per cent.
2.Both hotels represent an investment of US$250 million at a time when foreign reserves in Barbados are low at just Bd$1.2 billion. Therefore inflows from Sandals should contribute almost half of those reserves, a boon at this time when Barbados is starting down the barrel of devaluation.
3. Sandals will bring an additional 800 rooms to the country's room stock resulting in an additional 130,000 tourists visiting the country.
4. Its presence will help make Barbados a stronger destination and with Sandals' marketing abilities, this should help to redress Barbados' declining visitor numbers.
5. Sandals will be actively looking to local suppliers, thus precipitating a trickle-down effect which augurs well for local businesses.